Earnings growth: WPP's Sorrell: 'Out of the bath'

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WPP Group's management could have been justified in crowing after posting a strong end to a difficult 2003, but the company's leaders remained cautious.

WPP-parent of Ogilvy & Mather, J. Walter Thompson and Y&R Advertising-posted net income of $340.9 million for the year, up 136.8% over 2002 on revenue of $6.7 billion, up 5.1%. The swing in income was due to a 2002 writedown of goodwill to adjust the value of several businesses that suffered in the recession, said Paul Richardson, group finance director.

Revenue was up 0.7% on an organic basis, after adjusting for currency fluctuations and the impact of acquisitions, or 1.5% after factoring out the acquisition of Cordiant Communications Group Worldwide, which WPP absorbed last August. Revenue grew across all disciplines, except for public relations, which was down 0.6% for the year, after adjusting for currency.

WPP acknowleged it is pulling together some of its unaligned media agencies, such as Maximize in Asia and Media Insight in Germany, to create a third media network alongside MindShare and Mediaedge:cia. The network will help the company deal with client conflicts, said chief executive Martin Sorrell.

WPP's leaders remained as cautious as they have been throughout the recession. Several "quadrennial factors" will help push up spending in 2004, including the Summer Olympic Games and the U.S. presidential election, Mr. Sorrell said. But he warned other factors are still pressuring advertising revenue, including client consolidation, the growing influence of procurement departments on marketing budgets, the inflation of network TV ad rates and a continuing reluctance by clients to increase their spending in the face of much improved corporate earnings.

"We're out of the bath, but we're mildly concerned we might take a shower in 2005," Mr. Sorrell said. While Mr. Sorrell noted categorically that the recession is over, he did warn the U.S. government will face a challenge to keep the recovery humming in the face of a looming federal deficit, weak dollar and growing government spending expected after the 2004 elections.

Fast Facts


2003 Revenue: $6.7 billion, up 5.1%

2003 Net income: $340.9 million, up 136.8%

Source: Company report. Percent change is vs. last year and not adjusted for currency.

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